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EX-31.2 - EXHIBIT 31.2 - SPX FLOW, Inc.ex312-cfo302certq22016.htm
EX-32.1 - EXHIBIT 32.1 - SPX FLOW, Inc.ex321-ceocfo906certsq22016.htm
EX-31.1 - EXHIBIT 31.1 - SPX FLOW, Inc.ex311-ceo302certq22016.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2016
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to        
    Commission file number 1-37393
SPX FLOW, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
47-3110748
(State or Other Jurisdiction of Incorporation or
Organization)
(I.R.S. Employer Identification No.)
13320 Ballantyne Corporate Place
Charlotte, NC
28277
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s Telephone Number, Including Area Code (704) 752-4400
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ý Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ý Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o
 
Accelerated Filer o
 
 
 
Non-Accelerated Filer x
 
Smaller Reporting Company o
(Do not check if a smaller reporting company)
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No
Common shares outstanding as of July 29, 2016 were 41,803,770.



SPX FLOW, INC. AND SUBSIDIARIES
FORM 10-Q INDEX


 
 
 
 
 
 
 
 
 




PART I—FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated and Combined Financial Statements
SPX FLOW, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)




 
Three months ended
 
Six months ended
 
July 2, 2016
 
June 27, 2015
 
July 2, 2016
 
June 27, 2015
Revenues
$
528.8

 
$
615.1

 
$
1,033.8

 
$
1,186.3

Costs and expenses:
 
 
 
 
 
 
 
Cost of products sold
362.0

 
403.9

 
707.8

 
786.8

Selling, general and administrative
118.0

 
139.2

 
252.4

 
282.1

Intangible amortization
5.7

 
5.9

 
11.4

 
11.9

Impairment of goodwill and intangible assets
426.4

 

 
426.4

 

Special charges, net
10.8

 
3.3

 
51.8

 
7.1

Operating income (loss)
(394.1
)
 
62.8

 
(416.0
)
 
98.4

 
 
 
 
 
 
 
 
Other income (expense), net
(0.1
)
 
(1.8
)
 
(2.6
)
 
4.3

Related party interest expense, net

 
(2.3
)
 

 
(9.6
)
Other interest expense, net
(14.3
)
 
(0.4
)
 
(28.7
)
 
(0.7
)
Income (loss) before income taxes
(408.5
)
 
58.3

 
(447.3
)
 
92.4

Income tax benefit (provision)
56.2

 
(11.6
)
 
62.9

 
(22.6
)
Net income (loss)
(352.3
)
 
46.7

 
(384.4
)
 
69.8

Less: Net income (loss) attributable to noncontrolling interests
0.5

 
(0.4
)
 
(0.5
)
 
(0.7
)
Net income (loss) attributable to SPX FLOW, Inc.
$
(352.8
)
 
$
47.1

 
$
(383.9
)
 
$
70.5

 
 
 
 
 
 
 
 
Basic income (loss) per share of common stock
$
(8.52
)
 
$
1.15

 
$
(9.30
)
 
$
1.73

Diluted income (loss) per share of common stock
$
(8.52
)
 
$
1.15

 
$
(9.30
)
 
$
1.72

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding — basic
41.397

 
40.809

 
41.273

 
40.809

Weighted-average number of common shares outstanding — diluted
41.397

 
40.932

 
41.273

 
40.932

The accompanying notes are an integral part of these statements.

1


SPX FLOW, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in millions)


 
Three months ended
 
Six months ended
 
July 2, 2016
 
June 27, 2015
 
July 2, 2016
 
June 27, 2015
Net income (loss)
$
(352.3
)
 
$
46.7

 
$
(384.4
)
 
$
69.8

Other comprehensive income (loss), net:
 
 
 
 
 
 
 
Net unrealized gains (losses) on qualifying cash flow hedges, net of tax benefit (provision) of ($0.1) and $0.0 for the three and six months ended June 27, 2015

 
0.1

 

 
(0.1
)
Foreign currency translation adjustments
(52.9
)
 
28.3

 
(40.7
)
 
(92.8
)
Other comprehensive income (loss), net
(52.9
)
 
28.4

 
(40.7
)
 
(92.9
)
Total comprehensive income (loss)
(405.2
)
 
75.1

 
(425.1
)
 
(23.1
)
Less: Total comprehensive income (loss) attributable to noncontrolling interests
0.4

 
(0.5
)
 
(0.5
)
 
(1.6
)
Total comprehensive income (loss) attributable to SPX FLOW, Inc.
$
(405.6
)
 
$
75.6

 
$
(424.6
)
 
$
(21.5
)
The accompanying notes are an integral part of these statements.


2


SPX FLOW, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share data)


 
July 2, 2016
 
December 31, 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
229.0

 
$
295.9

Accounts receivable, net
495.8

 
483.9

Inventories, net
308.4

 
305.2

Other current assets
101.0

 
72.4

Total current assets
1,134.2

 
1,157.4

Property, plant and equipment:
 
 
 
Land
37.5

 
37.7

Buildings and leasehold improvements
243.4

 
224.9

Machinery and equipment
422.0

 
483.9

 
702.9

 
746.5

Accumulated depreciation
(315.9
)
 
(314.1
)
Property, plant and equipment, net
387.0

 
432.4

Goodwill
762.5

 
1,023.4

Intangibles, net
386.8

 
579.4

Other assets
122.3

 
111.6

TOTAL ASSETS
$
2,792.8

 
$
3,304.2

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
206.6

 
$
227.1

Accrued expenses
456.5

 
467.3

Income taxes payable
17.4

 
31.7

Short-term debt
33.7

 
28.0

Current maturities of long-term debt
20.4

 
10.3

Total current liabilities
734.6

 
764.4

Long-term debt
984.4

 
993.8

Deferred and other income taxes
89.9

 
142.0

Other long-term liabilities
131.0

 
133.4

Total long-term liabilities
1,205.3

 
1,269.2

Commitments and contingent liabilities (Note 12)


 


 
 
 
 
Equity:
 
 
 
SPX FLOW, Inc. shareholders’ equity:
 
 
 
Preferred stock, no par value, 3,000,000 shares authorized, and no shares issued and outstanding

 

Common stock, par value $0.01 per share, 300,000,000 shares authorized, 41,923,603 issued and 41,780,043 outstanding at July 2, 2016, and 41,429,014 issued and 41,386,740 outstanding at December 31, 2015
0.4

 
0.4

Paid-in capital
1,633.0

 
1,621.7

Retained earnings (accumulated deficit)
(362.8
)
 
21.1

Accumulated other comprehensive loss
(423.4
)
 
(382.7
)
Common stock in treasury (143,560 shares at July 2, 2016, and 42,274 shares at December 31, 2015)
(4.1
)
 
(1.4
)
Total SPX FLOW, Inc. shareholders' equity
843.1

 
1,259.1

Noncontrolling interests
9.8

 
11.5

Total equity
852.9

 
1,270.6

TOTAL LIABILITIES AND EQUITY
$
2,792.8

 
$
3,304.2

The accompanying notes are an integral part of these statements.

3


SPX FLOW, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
(Unaudited; in millions)


 
Six months ended July 2, 2016
 
Common Stock
 
Paid-In Capital
 
Retained Earnings (Accumulated Deficit)
 
Accumulated Other Comprehensive Loss
 
Common Stock in Treasury
 
Total SPX FLOW, Inc. Shareholders' Equity
 
Noncontrolling Interests
 
Total Equity
 
Shares Outstanding
 
Par
 
 
 
 
 
 
 
Balance at December 31, 2015
41.4

 
$
0.4

 
$
1,621.7

 
$
21.1

 
$
(382.7
)
 
$
(1.4
)
 
$
1,259.1

 
$
11.5

 
$
1,270.6

Net loss

 

 

 
(383.9
)
 

 

 
(383.9
)
 
(0.5
)
 
(384.4
)
Other comprehensive loss, net

 

 

 

 
(40.7
)
 

 
(40.7
)
 

 
(40.7
)
Incentive plan activity
0.2

 

 
3.5

 

 

 

 
3.5

 

 
3.5

Stock-based compensation expense

 

 
11.2

 

 

 

 
11.2

 

 
11.2

Restricted stock and restricted stock unit vesting, including related tax provision of $3.0 and net of tax withholdings
0.2

 

 
(3.4
)
 

 

 
(2.7
)
 
(6.1
)
 

 
(6.1
)
Dividends attributable to noncontrolling interests

 

 

 

 

 

 

 
(1.2
)
 
(1.2
)
Balance at July 2, 2016
41.8

 
$
0.4

 
$
1,633.0

 
$
(362.8
)
 
$
(423.4
)
 
$
(4.1
)
 
$
843.1

 
$
9.8

 
$
852.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Six months ended June 27, 2015
 
Former Parent Company Investment
 
Accumulated Other Comprehensive Loss
 
Total SPX FLOW, Inc. Shareholders' Equity
 
Noncontrolling Interests
 
Total Equity
Balance at December 31, 2014
$
2,144.6

 
$
(219.2
)
 
$
1,925.4

 
$
13.4

 
$
1,938.8

Net income (loss)
70.5

 

 
70.5

 
(0.7
)
 
69.8

Other comprehensive loss, net

 
(92.0
)
 
(92.0
)
 
(0.9
)
 
(92.9
)
Net transfers from former parent
568.6

 

 
568.6

 

 
568.6

Dividends attributable to noncontrolling interests

 

 

 
(0.2
)
 
(0.2
)
Balance at June 27, 2015
$
2,783.7

 
$
(311.2
)
 
$
2,472.5

 
$
11.6

 
$
2,484.1

 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these statements.



4


SPX FLOW, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)


 
Six months ended
 
July 2, 2016
 
June 27, 2015
Cash flows from (used in) operating activities:
 
 
 
Net income (loss)
$
(384.4
)
 
$
69.8

Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
 
 
 
Special charges, net
51.8

 
7.1

Impairment of goodwill and intangible assets
426.4

 

Deferred income taxes
(64.3
)
 
(3.9
)
Depreciation and amortization
34.1

 
29.5

Stock-based compensation
11.2

 

Pension and other employee benefits
5.6

 
1.6

Gain on asset sales and other, net
(1.3
)
 
(1.2
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable and other assets
(13.2
)
 
(68.1
)
Inventories
(3.7
)
 
(27.5
)
Accounts payable, accrued expenses and other
(67.9
)
 
38.8

Cash spending on restructuring actions
(22.9
)
 
(5.1
)
Net cash from (used in) operating activities
(28.6
)
 
41.0

Cash flows used in investing activities:
 
 
 
Proceeds from asset sales and other, net
2.1

 
1.6

Increase in restricted cash
(0.2
)
 
(0.1
)
Capital expenditures
(30.1
)
 
(22.6
)
Net cash used in investing activities
(28.2
)
 
(21.1
)
Cash flows from (used in) financing activities:
 
 
 
Borrowings under senior credit facilities
24.0

 

Repayments of senior credit facilities
(22.0
)
 

Borrowings under trade receivables financing arrangement
33.0

 

Repayments of trade receivables financing arrangement
(22.0
)
 

Repayments of related party notes payable

 
(5.4
)
Borrowings under other financing arrangements
1.1

 
1.0

Repayments of other financing arrangements
(8.8
)
 
(1.3
)
Minimum withholdings paid on behalf of employees for net share settlements, net
(3.1
)
 

Dividends paid to noncontrolling interests in subsidiary
(1.2
)
 
(0.2
)
Change in former parent company investment

 
(48.7
)
Net cash from (used in) financing activities
1.0

 
(54.6
)
Change in cash and equivalents due to changes in foreign currency exchange rates
(11.1
)
 
(6.8
)
Net change in cash and equivalents
(66.9
)
 
(41.5
)
Consolidated and combined cash and equivalents, beginning of period
295.9

 
216.6

Consolidated and combined cash and equivalents, end of period
$
229.0

 
$
175.1

The accompanying notes are an integral part of these statements.

5


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited; in millions, except per share data)



(1)    BASIS OF PRESENTATION
SPX FLOW, Inc. and its consolidated subsidiaries (“SPX FLOW,” ‘‘the Company,’’ “we,” “us,” or “our”) operate in three business segments and were wholly-owned by SPX Corporation (the “former Parent”) until September 26, 2015, at which time the former Parent distributed 100% of our outstanding common stock to its shareholders through a tax-free spin-off transaction (the “Spin-Off”).
Basis of Presentation
We prepared the condensed consolidated and combined financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim reporting. As permitted under those rules and regulations, certain footnotes or other financial information normally required by accounting principles generally accepted in the United States (“GAAP”) can be condensed or omitted. In our opinion, these financial statements include the adjustments (consisting only of normal and recurring items) necessary for their fair presentation.
Our condensed consolidated balance sheets as of July 2, 2016 and December 31, 2015, and financial activity presented in the condensed consolidated statements of operations and comprehensive loss for the three and six months ended July 2, 2016 and of equity and cash flows for the six months ended July 2, 2016, consist of the consolidated balances of SPX FLOW as an independent, publicly traded company as of and during the periods then ended. The basis of presentation for periods prior to the Spin-Off is discussed below. These financial statements, including the periods presented prior to the Spin-Off, have been prepared in conformity with GAAP, and the unaudited information included herein should be read in conjunction with our consolidated and combined financial statements included in our 2015 Annual Report on Form 10-K.
As discussed further in Note 3, segment results and corporate expense for the three and six months ended June 27, 2015 have been recast to (i) reflect the reclassification of certain product line results in order to more precisely present our results by reportable segment, (ii) include stock-based compensation costs associated with segment employees in segment income, and (iii) include stock-based compensation costs associated with corporate employees in corporate expense.

Certain operating cash flow amounts in the accompanying condensed combined statement of cash flows for the six months ended June 27, 2015 have been reclassified to conform to the current year presentation.
Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from these estimates and interim results are not necessarily indicative of full year results. The condensed consolidated and combined financial statements may not be indicative of the Company’s future performance.
We establish actual interim closing dates using a fiscal calendar, which requires our businesses to close their books on the Saturday closest to the end of the first calendar quarter, with the second and third quarters being 91 days in length. Our fourth quarter ends on December 31. The interim closing dates for the first, second and third quarters of 2016 are April 2, July 2, and October 1, compared to the respective March 28, June 27, and September 26, 2015 dates. We had six more days in the first quarter of 2016 and will have five less days in the fourth quarter of 2016 than in the respective 2015 periods.
Basis of Presentation Prior to the Spin-Off
Our condensed combined statements of operations and comprehensive loss for the three and six months ended June 27, 2015 and of equity and cash flows for the six months ended June 27, 2015, were prepared on a “carve out” basis and were derived from the condensed consolidated financial statements and accounting records of the former Parent for the historical periods presented. These condensed combined statements do not necessarily reflect what the results of operations, financial position, and cash flows would have been had SPX FLOW operated as an independent company for the historical periods reported.
The condensed combined statements of operations for the three and six months ended June 27, 2015 included costs for certain centralized functions and programs provided and/or administered by the former Parent that were charged directly to the former Parent’s business units, including business units of SPX FLOW. These centralized functions and programs included, but were not limited to, information technology, payroll services, shared services for accounting, supply chain and manufacturing operations, and business and health insurance coverage. During the three and six months ended June 27, 2015, $27.0 and $53.0

6


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

of such costs, respectively, were directly charged to the Company's business units and were included in selling, general and administrative expenses in the accompanying condensed combined statements of operations.
For purposes of preparing these condensed combined statements of operations and comprehensive income (loss) for the three and six months ended June 27, 2015 and of equity and cash flows for the six months ended June 27, 2015, a portion of the former Parent’s total corporate expenses were allocated to SPX FLOW. These expense allocations included the cost of corporate functions and/or resources provided by the former Parent which included, but were not limited to, executive management, finance and accounting, legal, and human resources support, and the cost of our Charlotte, NC corporate headquarters and our Asia Pacific center in Shanghai, China, as well as related benefit costs associated with such functions, such as pension and postretirement benefits and stock-based compensation. During the three and six months ended June 27, 2015, the Company was allocated $12.6 and $36.4 of such general corporate and related benefit costs, respectively, which were primarily included within selling, general and administrative expenses in the accompanying condensed combined statements of operations.
A detailed description of the methodology used to allocate corporate-related costs is included in our consolidated and combined financial statements included in our 2015 Annual Report on Form 10-K.
(2)    NEW ACCOUNTING PRONOUNCEMENTS
The following is a summary of new accounting pronouncements that apply or may apply to our business.
In May 2014, and as amended in the first six months of 2016, the Financial Accounting Standards Board (the "FASB") issued a new standard on revenue recognition that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The new standard requires a number of disclosures intended to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue, and the related cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. We are currently evaluating the effect that this new standard will have on our condensed consolidated financial statements.
In April 2015, the FASB issued a new standard that requires debt issuance costs related to a recognized debt liability to be reported in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This standard was adopted in the first quarter of 2016 and was applied retrospectively. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In January 2016, the FASB issued an amendment to existing guidance which revises entities’ accounting related to: (i) the classification and measurement of investments in equity securities, and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. The amendment also changes certain disclosure requirements associated with the fair value of financial instruments. The amended guidance is effective for interim and annual reporting periods beginning after December 15, 2017 and requires a modified retrospective approach to adoption. Early adoption is only permitted for a provision related to instrument-specific credit risk. We are currently evaluating the effect that this amendment will have on our condensed consolidated financial statements.
In February 2016, the FASB issued a new standard which requires a lessee to recognize on its balance sheet the assets and liabilities associated with the rights and obligations created by leases with terms that exceed twelve months. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of costs and cash flows arising from a lease. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption for lessees related to capital and operating leases existing at, or entered into after, the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. We are currently evaluating the effect that this new standard will have on our condensed consolidated financial statements.
In March 2016, the FASB issued an amendment to clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The amendment is effective for interim and annual reporting periods beginning after December 15, 2016 and may be applied on either a prospective or modified retrospective basis. The impact of the adoption of this amendment on our condensed consolidated financial statements will be based on any future events that impact our hedging relationships.

7


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

In March 2016, the FASB issued an amendment which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, classification of awards as either equity or liabilities, as well as classification in the statement of cash flows. This amendment is effective for prospective interim and annual reporting periods beginning after December 15, 2016. We plan on adopting this amendment at that time and are currently evaluating its effect on our condensed consolidated financial statements.
(3)    INFORMATION ON REPORTABLE SEGMENTS, CORPORATE EXPENSE AND OTHER
We are a global supplier of highly specialized, engineered solutions with operations in over 35 countries and sales in over 150 countries around the world.  Many of our solutions play a role in helping to meet global demand for processed foods and beverages and power and energy, particularly in emerging markets.
Beginning January 2016, we changed our internal reporting structure to more precisely present reportable segment revenue and income in certain countries where we conduct business across multiple end markets. As a result of these structural enhancements, certain product line results have been reclassified between reportable segments. Additionally, we changed our measurement of segment income to include stock-based compensation costs associated with segment employees, while stock-based compensation for corporate employees is now reported as a component of corporate expense. These changes in reportable segment revenue and income, as well as in our measurement of segment profitability, are consistent with how our chief operating decision maker ("CODM"), beginning in 2016, assesses operating performance and allocates resources.
Segment results and corporate expense have been recast for all historical periods presented to reflect these changes.
We have three reportable segments: Food and Beverage, Power and Energy, and Industrial. In determining our segments, we apply the threshold criteria of the Segment Reporting Topic of the Codification to operating income or loss of each segment before considering impairment and special charges, pension and postretirement expense and other indirect corporate expenses (including corporate stock-based compensation). This is consistent with the way our CODM evaluates the results of each segment.
Food and Beverage
The Food and Beverage reportable segment operates in a regulated, global industry with customers who demand highly engineered, turn-key solutions. Key demand drivers include dairy consumption, emerging market capacity expansion, sustainability and productivity initiatives, customer product innovation and food safety. Key products for the segment include mixing, drying, evaporation and separation systems and components, heat exchangers, and reciprocating and centrifugal pump technologies. Our core brands include Anhydro, APV, Bran+Luebbe, Gerstenberg Schroeder, LIGHTNIN, Seital, and Waukesha Cherry-Burrell.
Power and Energy
The Power and Energy reportable segment primarily serves customers in the oil and gas industry and, to a lesser extent, the nuclear and other conventional power industries. A large portion of the segment's revenues are concentrated in oil extraction, production and transportation at existing wells, and in pipeline applications. The underlying driver of this segment includes demand for power and energy. Key products for the segment include pumps, valves and related accessories, while the core brands include APV, Bran+Luebbe, ClydeUnion Pumps, Copes-Vulcan, Dollinger Filtration, LIGHTNIN, M&J Valve, Plenty, and Vokes.
Industrial
The Industrial reportable segment primarily serves customers in the chemical, air treatment, mining, pharmaceutical, marine, shipbuilding, infrastructure construction, general industrial and water treatment industries. Key demand drivers of this segment are tied to macroeconomic conditions and growth in the respective end markets we serve. Key products for the segment are air dryers, filtration equipment, mixers, pumps, hydraulic technologies and heat exchangers. Core brands include Airpel, APV, Bolting Systems, Delair, Deltech, Hankison, Jemaco, Johnson Pump, LIGHTNIN, Power Team, and Stone.
Corporate Expense
Corporate expense generally relates to the cost of our Charlotte, NC corporate headquarters and our Asia Pacific center in Shanghai, China for the period subsequent to the Spin-Off, and includes allocations of the cost of corporate functions and/or resources provided by the former Parent prior to the Spin-Off. A detailed description of the methodology used to allocate

8


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

corporate-related costs prior to the Spin-Off can be found in our consolidated and combined financial statements included in our 2015 Annual Report on Form 10-K.
Financial data for our reportable segments for the three and six months ended July 2, 2016 and June 27, 2015 were as follows:
 
Three months ended
 
Six months ended
 
July 2, 2016
 
June 27, 2015
 
July 2, 2016
 
June 27, 2015
Revenues(1):
 
 
 
 
 
 
 
Food and Beverage
$
188.0

 
$
234.8

 
$
372.8

 
$
444.9

Power and Energy
155.8

 
184.1

 
305.5

 
357.5

Industrial
185.0

 
196.2

 
355.5

 
383.9

     Total revenues
$
528.8

 
$
615.1

 
$
1,033.8

 
$
1,186.3

 
 
 
 
 
 
 
 
Income:
 
 
 
 
 
 
 
Food and Beverage
$
19.9

 
$
28.6

 
$
37.3

 
$
51.0

Power and Energy
10.0

 
23.0

 
12.2

 
39.0

Industrial
26.9

 
27.9

 
46.3

 
53.7

     Total income for reportable segments
56.8

 
79.5

 
95.8

 
143.7

 
 
 
 
 
 
 
 
Corporate expense
12.6

 
12.4

 
31.5

 
36.2

Pension and postretirement expense
1.1

 
1.0

 
2.1

 
2.0

Impairment of goodwill and intangible assets
426.4

 

 
426.4

 

Special charges, net
10.8

 
3.3

 
51.8

 
7.1

Consolidated and combined operating income (loss)
$
(394.1
)
 
$
62.8

 
$
(416.0
)
 
$
98.4

(1)      
We recognized revenues under the percentage-of-completion method of $87.3 and $123.8 in the three months ended July 2, 2016 and June 27, 2015, respectively. For the six months ended July 2, 2016 and June 27, 2015, revenues under the percentage-of-completion method were $186.3 and $237.8, respectively. Costs and estimated earnings in excess of billings on contracts accounted for under the percentage-of-completion method were $108.4 and $87.4 as of July 2, 2016 and December 31, 2015, respectively, and are reported as a component of ‘‘Accounts receivable, net’’ in the condensed consolidated balance sheets. Billings in excess of costs and estimated earnings on uncompleted contracts accounted for under the percentage-of-completion method were $62.7 and $52.9 as of July 2, 2016 and December 31, 2015, respectively, and are reported as a component of ‘‘Accrued expenses’’ in the condensed consolidated balance sheets.
(4)     SPECIAL CHARGES, NET
Special charges, net, for the three and six months ended July 2, 2016 and June 27, 2015 were as follows:
 
Three months ended
 
Six months ended
 
July 2, 2016
 
June 27, 2015
 
July 2, 2016
 
June 27, 2015
Food and Beverage
$
5.7

 
$
0.3

 
$
14.5

 
$
2.7

Power and Energy
1.6

 
2.4

 
12.3

 
2.3

Industrial
2.5

 
0.6

 
7.0

 
2.1

Other
1.0

 

 
18.0

 

Total
$
10.8

 
$
3.3

 
$
51.8

 
$
7.1

Global Realignment Program
As disclosed in our 2015 Annual Report on Form 10-K, we announced our intent to further optimize our global footprint, streamline business processes and reduce selling, general and administrative expense through a global realignment program. The realignment program is intended to reduce costs across operating sites and corporate and global functions, in part by making structural changes and process enhancements which allow us to operate more efficiently. Special charges for the three and six

9


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

months ended July 2, 2016 were substantially associated with this program and included costs associated primarily with employee termination and facility consolidation, as well as certain non-cash charges associated with fixed asset impairments.
Special Charges, Net, By Reportable Segment
Food and Beverage — Charges for the three and six months ended July 2, 2016 related primarily to severance and other costs associated with the global realignment program, including (i) the consolidation and relocation of a manufacturing facility in Germany to an existing facility in Poland and of other facilities in Europe, and (ii) various other restructuring initiatives in Europe, the U.S., China and Brazil.
Charges for the three and six months ended June 27, 2015 related primarily to severance and other costs associated with (i) the consolidation of facilities in Europe and (ii) a restructuring initiative in South America.
Power and Energy — Charges for the three months ended July 2, 2016 included primarily an asset impairment charge of $1.5 related to certain long-lived assets. Charges for the six months ended July 2, 2016 related primarily to severance and other costs associated with the global realignment program in the U.K., France, Germany and, to a lesser extent, North America, including actions taken to (i) reduce the cost base of the segment in response to oil price declines that began in the latter half of 2014 and continued into 2016, which has resulted in a reduction in capital spending by our customers in the oil and gas industries, and (ii) realign certain sites around core service markets. Charges for the six months ended July 2, 2016 also included the $1.5 asset impairment charge previously noted.
Charges for the three and six months ended June 27, 2015 related primarily to severance and other costs associated with actions that were taken to reduce the cost base of the segment’s Clyde Union business, also in response to the significant decline in oil prices that began in the latter half of 2014 and the resultant impact on capital spending by our customers in the oil and gas industries.
Industrial — Charges for the three and six months ended July 2, 2016 related primarily to severance and other costs associated with the global realignment program, including (i) the consolidation and relocation of a manufacturing facility in Denmark to an existing facility in Poland and of certain other North American facilities, and (ii) various other global restructuring initiatives including, during the six months ended July 2, 2016, charges related to the relocation of a facility in Asia Pacific.
Charges for the three and six months ended June 27, 2015 related primarily to severance and other costs associated with (i) the continued reorganization of the Johnson Pump management structure in Europe and (ii) a reorganization of the commercial and operational structure of our plate heat exchanger business in Europe.
Other — Charges for the three months ended July 2, 2016 reflected primarily (i) asset impairment charges of $0.6 related to certain long-lived assets and (ii) revisions of estimates for severance and other costs associated with the global realignment program which were previously recorded in the first quarter of 2016. Charges for the six months ended July 2, 2016 related primarily to corporate asset impairment charges of $12.6, as well as severance and other related costs associated with the global realignment program. Asset impairment charges resulted primarily from management’s decision during the first quarter of 2016 to market certain corporate assets for sale. Those assets, which have an estimated fair value of approximately $27.0, were marketed for sale beginning in the second quarter and, accordingly, are considered held for sale and reported as a component of "Other current assets" in the condensed consolidated balance sheet as of July 2, 2016.
Expected charges still to be incurred under actions approved as of July 2, 2016 were approximately $2.3.

10


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

The following is an analysis of our restructuring liabilities for the six months ended July 2, 2016 and June 27, 2015:
 
Six months ended
 
July 2, 2016
 
June 27, 2015
Balance at beginning of year
$
32.9

 
$
9.2

Special charges(1)
37.7

 
6.9

Utilization — cash
(22.9
)
 
(5.1
)
Currency translation adjustment and other
0.1

 
(0.5
)
Balance at end of period
$
47.8

 
$
10.5

(1)
Amounts that impacted special charges but not the restructuring liabilities included $14.1 of asset impairment charges during the six months ended July 2, 2016, and $0.2 of non-cash charges during the six months ended June 27, 2015.
(5)    INVENTORIES, NET
Inventories at July 2, 2016 and December 31, 2015 comprised the following:
 
July 2, 2016
 
December 31, 2015
Finished goods
$
86.3

 
$
87.5

Work in process
92.9

 
88.8

Raw materials and purchased parts
135.5

 
135.2

Total FIFO cost
314.7

 
311.5

Excess of FIFO cost over LIFO inventory value
(6.3
)
 
(6.3
)
Total inventories
$
308.4

 
$
305.2

Inventories include material, labor and factory overhead costs and are reduced, when necessary, to estimated net realizable values. Certain domestic inventories are valued using the last-in, first-out (“LIFO”) method. These inventories were approximately 7% and 5% of total inventory at July 2, 2016 and December 31, 2015. Other inventories are valued using the first-in, first-out (“FIFO”) method.
(6)    GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill by reportable segment for the six months ended July 2, 2016 were as follows:
 
December 31, 2015
 
Goodwill Resulting from Business Combinations
 
Impairments
 
Foreign Currency Translation and Other(1)
 
July 2, 2016
Food and Beverage
$
269.9

 
$

 
$

 
$
(0.3
)
 
$
269.6

Power and Energy(2)
538.9

 

 
(252.8
)
 
(17.4
)
 
268.7

Industrial(3)
214.6

 

 

 
9.6

 
224.2

Total
$
1,023.4

 
$

 
$
(252.8
)
 
$
(8.1
)
 
$
762.5

(1)
In connection with our recasting of historical reportable segment results in January 2016, as discussed further in Note 3, we performed a re-allocation of reportable segment goodwill during the first quarter of 2016. This re-allocation resulted in the following changes in goodwill compared to amounts previously reported at December 31, 2015 by reportable segment: Food and Beverage goodwill reduction of $5.6, Power and Energy goodwill reduction of $4.0, and Industrial goodwill increase of $9.6.
(2)
The carrying amount of goodwill included $252.8 and $0.0 of accumulated impairments as of July 2, 2016 and December 31, 2015, respectively.
(3)
The carrying amount of goodwill included $67.7 of accumulated impairments as of July 2, 2016 and December 31, 2015.

11


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

As of the first day of our fiscal fourth quarter of 2015, we performed our annual goodwill impairment test, which indicated the estimated fair value of our Power and Energy reporting unit exceeded its carrying value by approximately 10%. The estimated fair value of each of our other reporting units significantly exceeded its respective book value.
Over the course of the fourth quarter of 2015, global oil prices continued to decline, resulting in delayed customer order patterns.  Based on these slower order rates at the end of the fourth quarter, we lowered the 2016 forecasted revenue and profitability of our Power and Energy segment. The combination of adverse market conditions, lower order trends, and resultant impact to our 2016 forecast subsequent to our annual goodwill impairment test led management to conclude an interim impairment test of our Power and Energy reporting unit was necessary as of December 31, 2015. 
The results of our interim goodwill impairment test conducted as of December 31, 2015 indicated the estimated fair value of the Power and Energy reporting unit exceeded its carrying value by approximately 3%, while the carrying value of the Power and Energy segment goodwill was $538.9 as of December 31, 2015. Our assumptions in the December 31, 2015 interim impairment test included, among others, that (i) first half 2016 orders trends would remain comparable to those obtained in the fourth quarter of 2015, (ii) targeted cost savings could be executed as planned and cost savings would, in part, be realized by the end of 2016, and (iii) current and forward EBITDA multiples would remain consistent with oil and gas industry transactions observed in the preceding twelve months.
During the second quarter of 2016, our Power and Energy reporting unit experienced sustained quarterly order rates below order intake levels in the fourth quarter of 2015 and operating results which were below our internal estimates. As a result of the lower order patterns and lower year-to-date earnings of the reporting unit, we revised our 2016 projections below the bottom end of the range utilized in our fourth quarter 2015 interim impairment test, leading us to conclude that an interim impairment test as of July 2, 2016 was necessary.
Using revised cash flow projections as of July 2, 2016, market participant discount rates, and EBITDA multiples observed of peer companies and in recent transactions in the oil and gas industry, we determined the “step one” fair value of our Power and Energy reporting unit was below the carrying value of its net assets. In “step two” of the goodwill impairment test, we estimated the implied fair value of Power and Energy’s goodwill as of July 2, 2016, which resulted in an impairment charge related to such goodwill of $252.8. After reflecting the impairment charge, goodwill for the Power and Energy reporting unit was $268.7 as of July 2, 2016.
Adverse changes to or a failure to achieve the updated cash flow projections, further deterioration of  macroeconomic conditions and/or significant declines in industry multiples, could result in a future impairment.
The non-recurring fair value measurement is a "Level 3" measurement under the fair value hierarchy as further defined in Note 14.
Management assessed the operating performance of each of our other reporting units and concluded that an interim impairment test as of July 2, 2016 for the other reporting units was not necessary.
Other Intangibles, Net
Identifiable intangible assets were as follows:
 
July 2, 2016
 
December 31, 2015
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
Intangible assets with determinable lives:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
221.0

 
$
(101.3
)
 
$
119.7

 
$
344.0

 
$
(94.1
)
 
$
249.9

Technology
95.7

 
(41.1
)
 
54.6

 
122.1

 
(38.0
)
 
84.1

Patents
6.6

 
(4.8
)
 
1.8

 
6.7

 
(4.6
)
 
2.1

Other
12.9

 
(10.3
)
 
2.6

 
13.0

 
(10.3
)
 
2.7

 
336.2

 
(157.5
)
 
178.7

 
485.8

 
(147.0
)
 
338.8

Trademarks with indefinite lives
208.1

 

 
208.1

 
240.6

 

 
240.6

Total
$
544.3

 
$
(157.5
)
 
$
386.8

 
$
726.4

 
$
(147.0
)
 
$
579.4


12


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

At July 2, 2016, the net carrying value of intangible assets with determinable lives consisted of the following by reportable segment: $81.2 in Power and Energy, $62.5 in Food and Beverage, and $35.0 in Industrial. Trademarks with indefinite lives consisted of the following by reportable segment: $101.4 in Food and Beverage, $60.7 in Industrial and $46.0 in Power and Energy.
During the second quarter of 2016, as described in the “Goodwill” section above, we observed sustained quarterly order rates for Power and Energy below order intake levels in the fourth quarter of 2015 and operating results below our expectations, and thus determined an interim test of recoverability was required for the definite and indefinite-lived intangibles of that reporting segment. Based on market conditions as of July 2, 2016 and backlog positions falling below prior periods, we reduced our estimates of the expected future revenues from recorded intangible assets in the Power and Energy reporting unit.
In accordance with relevant guidance, we estimated the undiscounted cash flows of our customer relationships by projecting revenues and margin driven by customer relationships, reduced by an estimated retention rate. We estimated the undiscounted cash flows of our technology assets by applying estimated royalty rates to revenues projected to result from each of such underlying assets. The undiscounted cash flows of customer relationships and technology assets were less than their respective carrying values. In “step two” of the impairment test, we discounted expected cash flows from the customer relationships and technology assets at a rate of return that reflects current market conditions. As a result, we recorded impairment charges of $115.9 related to customer relationships and $30.9 related to technology assets during the second quarter of 2016.
Also during the second quarter of 2016, and as a result of the “step one” impairment test of our Power and Energy indefinite-lived trademarks, we recorded an impairment charge of $26.8, representing the difference between fair value and carrying value. The fair value of the reporting unit’s trademarks was estimated using assumed royalty rates applied to expected future cash flows of the respective product lines of the reporting unit, discounted at a rate of return reflecting current market conditions.
Other changes in the gross carrying values of trademarks and other identifiable intangible assets during the six months ended July 2, 2016 related primarily to foreign currency translation.
(7)    WARRANTY
The following is an analysis of our product warranty accrual for the periods presented:
 
Six months ended
 
July 2, 2016
 
June 27, 2015
Balance at beginning of year
$
14.8

 
$
18.4

Provisions
3.7

 
4.4

Usage
(6.0
)
 
(6.1
)
Currency translation adjustment
(0.1
)
 
(0.8
)
Balance at end of period
12.4

 
15.9

Less: Current portion of warranty
11.8

 
14.7

Non-current portion of warranty
$
0.6

 
$
1.2

(8)    EMPLOYEE BENEFIT PLANS
Pension and postretirement expense includes net periodic benefit expense associated with defined benefit pension and postretirement plans we sponsor and, in 2015, an allocation of a portion of the net periodic benefit expense associated with defined benefit pension and postretirement plans sponsored by the former Parent.
Components of Net Periodic Pension and Postretirement Benefit Expense
The net periodic pension benefit expense for the foreign pension plans we sponsor was $0.5 and $0.7 for the three months ended July 2, 2016 and June 27, 2015, respectively, and $1.0 and $1.4, respectively, for the six months then ended, and was comprised primarily of service and interest costs. The net periodic benefit expense for the domestic pension and postretirement

13


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

plans we sponsor was $0.6 and $0.1 for the three months ended July 2, 2016 and June 27, 2015, respectively, and $1.1 and $0.2 respectively, for the six months then ended, and was comprised of service and interest costs.
Net periodic benefit cost allocated to the Company related to the plans sponsored by the former Parent was $0.2 and $0.4 for the three and six months ended June 27, 2015, respectively.
Employer Contributions
During the six months ended July 2, 2016, contributions to the foreign and domestic pension plans we sponsor were less than $0.1.
(9)    INDEBTEDNESS
Debt at July 2, 2016 and December 31, 2015 comprised the following:
 
July 2, 2016
 
December 31, 2015
Domestic revolving loan facility
$
2.0

 
$

Term loan(1)
400.0

 
400.0

6.875% senior notes, due in August 2017
600.0

 
600.0

Trade receivables financing arrangement
11.0

 

Other indebtedness(2)
29.6

 
37.3

Less: deferred financing fees(3)
(4.1
)
 
(5.2
)
Total debt
1,038.5

 
1,032.1

Less: short-term debt
33.7

 
28.0

Less: current maturities of long-term debt
20.4

 
10.3

Total long-term debt
$
984.4

 
$
993.8

(1)
The term loan of $400.0 is repayable in quarterly installments of 5.0% annually, beginning with our third quarter of 2016, with the remaining balance repayable in full on September 24, 2020.
(2)
Primarily includes capital lease obligations of $8.9 and $9.3 and balances under a purchase card program of $19.5 and $23.6 as of July 2, 2016 and December 31, 2015, respectively. The purchase card program allows for payment beyond the normal payment terms for goods and services acquired under the program. As this arrangement extends the payment of these purchases beyond their normal payment terms through third-party lending institutions, we have classified these amounts as short-term debt.
(3)
Deferred financing fees were comprised of fees related to the term loan and senior notes.
A detailed description of our senior credit facilities and senior notes is included in our consolidated and combined financial statements included in our 2015 Annual Report on Form 10-K.
The weighted-average interest rate of outstanding borrowings under our senior credit facilities was approximately 2.2% at July 2, 2016.
At July 2, 2016, we had $438.5 of available borrowing capacity under our revolving credit facilities after giving effect to borrowings of $2.0 under the domestic revolving loan facility and $9.5 reserved for outstanding letters of credit. At July 2, 2016, we also had $7.7 of available borrowing capacity under our trade receivables financing arrangement after giving effect to borrowings of $11.0. Our trade receivables financing arrangement provides for a total commitment of $50.0 from associated lenders, depending upon our trade receivables balance and other factors. In addition, at July 2, 2016, we had $244.4 of available issuance capacity under our foreign credit instrument facilities after giving effect to $255.6 reserved for outstanding letters of credit.
At July 2, 2016, in addition to the revolving lines of credit described above, we had approximately $6.2 of letters of credit outstanding under separate arrangements in China and India.
At July 2, 2016, we were in compliance with all covenants of our senior credit facilities and our senior notes.

14



(10)    DERIVATIVE FINANCIAL INSTRUMENTS
We manufacture and sell our products in a number of countries and, as a result, are exposed to movements in foreign currency ("FX") exchange rates. Our objective is to preserve the economic value of non-functional currency-denominated cash flows and to minimize the impact of changes as a result of currency fluctuations. Our principal currency exposures relate to the Euro, Chinese Yuan and Great Britain Pound.
We had FX forward contracts with an aggregate notional amount of $51.7 and $44.7 outstanding as of July 2, 2016 and December 31, 2015, respectively, with all such contracts scheduled to mature within one year. We also had FX embedded derivatives with an aggregate notional amount of $32.3 and $31.6 at July 2, 2016 and December 31, 2015, respectively, with scheduled maturities of $29.3, $2.8 and $0.2 within one, two and three years, respectively. The unrealized losses, net of tax, recorded in accumulated other comprehensive loss related to FX forward contracts were less than $0.1 as of July 2, 2016 and December 31, 2015. The net gains (losses) recorded in "Other income (expense), net" related to FX gains (losses) totaled $0.2 and $(2.9) for the three months ended July 2, 2016 and June 27, 2015, respectively, and $(3.0) and $0.2 for the six months then ended.
We enter into arrangements designed to provide the right of setoff in the event of counterparty default or insolvency, and have elected to offset the fair values of our FX forward contracts in our condensed consolidated balance sheets. The gross fair values of our FX forward contracts and FX embedded derivatives, in aggregate, were $2.9 and $2.0 (gross assets) and $1.3 and $1.5 (gross liabilities) at July 2, 2016 and December 31, 2015, respectively.
(11)    EQUITY AND STOCK-BASED COMPENSATION
Income (Loss) Per Share
Prior to the Spin-Off, SPX FLOW had no common shares outstanding. On September 26, 2015, 41.322 SPX FLOW common shares were distributed to the former Parent's shareholders in conjunction with the Spin-Off. For comparative purposes, basic shares outstanding reflect this amount in all periods presented prior to the Spin-Off.  For purposes of computing dilutive shares, unvested SPX FLOW awards at the Spin-Off date were assumed to have been issued and outstanding from January 1, 2015.  The resulting number of weighted-average dilutive shares has been used for the three and six months ended June 27, 2015. The following table sets forth the number of weighted average shares outstanding used in the computation of basic and diluted income (loss) per share: 
 
Three months ended
 
Six months ended
 
July 2, 2016
 
June 27, 2015
 
July 2, 2016
 
June 27, 2015
Weighted-average shares outstanding, basic
41.397

 
40.809
 
41.273

 
40.809
Dilutive effect of share-based awards

 
0.123
 

 
0.123
Weighted-average shares outstanding, dilutive(1)
41.397

 
40.932
 
41.273

 
40.932
(1)
For the three and six months ended July 2, 2016, an aggregate of 0.780 and 0.820, respectively, of unvested restricted stock shares, restricted stock units, and stock options outstanding were excluded from the computation of diluted loss per share as we incurred a net loss during the periods. For the three and six months ended July 2, 2016, the number of anti-dilutive unvested restricted stock shares and restricted stock units outstanding excluded from the computation of diluted loss per share was 0.171 and 0.375, respectively. For the three and six months ended June 27, 2015, 0.479 of unvested restricted stock shares/units were not included in the computation of diluted income per share because required market thresholds for vesting (as discussed in our consolidated and combined financial statements included in our 2015 Annual Report on Form 10-K) were not met. For the three and six months ended June 27, 2015, 0.396 of stock options were not included in the computation of diluted income per share because their exercise price was greater than the average market price of common shares.
Stock-Based Compensation
Prior to the Spin-Off, eligible employees of the Company participated in the former Parent’s share-based compensation plan pursuant to which they were granted share-based awards of the former Parent's stock. The former Parent’s share-based compensation plan included awards for restricted stock shares, restricted stock units and stock options. Compensation expense for share-based awards recorded by the Company prior to the Spin-Off includes the expense associated with the employees historically attributable to the Company’s operations, as well as an allocation of stock-based compensation expense for the former Parent’s corporate employees who provided certain centralized support functions.

15


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

In connection with the Spin-Off, outstanding equity-based awards granted to SPX FLOW employees under the former Parent's plan were converted into awards of the Company using a formula designed to preserve the intrinsic value of the awards immediately prior to the Spin-Off. This conversion did not result in additional compensation expense. Additionally, certain restricted stock units granted to employees in 2013 and 2014, none of whom were named executive officers at the time, were modified at the Spin-Off date to provide a minimum vesting equivalent to 50% of the underlying units at the end of the applicable remaining service periods. Compensation expense of $0.3 and $0.6 related to the modification was recognized in the three and six months ended July 2, 2016, and the remaining $0.6 related to the modification will be recognized over the remaining service periods of the related awards.
Since the Spin-Off, SPX FLOW stock-based compensation awards may be granted to certain eligible employees or non-employee directors under the SPX FLOW Stock Compensation Plan (the “Stock Plan”).  Under the Stock Plan, up to 2.082 unissued shares of our common stock were available for future grant as of July 2, 2016. The Stock Plan permits the issuance of authorized but unissued shares or shares from treasury upon the exercise of options, vesting of restricted stock units, or granting of restricted stock shares. Each stock option, restricted stock share and restricted stock unit granted reduces share availability under the Stock Plan by one share.
Restricted stock shares or restricted stock units may be granted to certain eligible employees or non-employee directors in accordance with the Stock Plan and applicable award agreements. Subject to participants' continued service and other award terms and conditions, the restrictions lapse and awards generally vest over a period of time, generally three years (or one year for awards to non-employee directors). In some instances, such as death, disability, or retirement, awards may vest concurrently with or following an employee's termination. Approximately half of the restricted stock shares and restricted stock unit awards vest based on performance thresholds, while the remaining portion vest based on the passage of time since grant date.
Eligible employees, including officers, received target performance awards primarily during the three months ended April 2, 2016 in which the employee can earn between 50% and 150% of the target performance award in the event, and to the extent, the award meets the required performance vesting criteria. Such awards are generally subject to the employees’ continued employment during the three-year vesting period, and may be completely forfeited if the threshold performance criteria are not met. Vesting for the 2016 target performance awards is based on SPX FLOW shareholder return versus the performance of a composite group of companies, as established under the awards, over the three-year period from January 1, 2016 through December 31, 2018. These performance awards were issued as restricted stock units to eligible non-officer employees and restricted stock shares to eligible officers.
Eligible non-officer employees also received restricted stock unit awards primarily during the three months ended April 2, 2016 that vest ratably over three years, subject to the passage of time and the employees’ continued employment during such period. In some instances, such as death, disability, or retirement, awards may vest concurrently with or following an employee's termination. Eligible officers received restricted stock share awards in the three months ended April 2, 2016 that vest subject to an internal performance metric during the first year of the award and then also require the completion of a two-year holding period after the first year of the award (including eligible officers’ continued employment during that period), before issuance to the eligible officers.
Non-employee directors received restricted stock share awards in the three months ended July 2, 2016 that vest at the close of business on the day before the date of the Company's next regular annual meeting of shareholders held after the date of the grant, subject to the passage of time and the directors' continued service during such period.
Our restricted stock share and unit awards include early retirement provisions which permit recipients to be eligible for vesting generally upon reaching the age of 55 and completing five years of service.
Restricted stock shares and restricted stock units that do not vest within the applicable vesting period are forfeited.
Stock options may be granted to eligible employees in the form of incentive stock options or nonqualified stock options. The option price per share may be no less than the fair market value of our common stock at the close of business on the date of grant. Upon exercise, the employee has the option to surrender previously owned shares at current value in payment of the exercise price and/or for withholding tax obligations.

16


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

The recognition of compensation expense for share-based awards is based on their grant-date fair values. The fair value of each award is amortized over the lesser of the award's requisite or derived service period, which is generally up to three years as noted above. For the three and six months ended July 2, 2016 and June 27, 2015, we recognized compensation expense related to share-based programs in “Selling, general and administrative” expense in the accompanying condensed consolidated and combined statements of operations as follows:
 
Three months ended
 
Six months ended
 
July 2, 2016
 
June 27, 2015
 
July 2, 2016
 
June 27, 2015
Expense associated with individuals attributable to SPX FLOW's operations
$
4.0

 
$
1.4

 
$
10.6

 
$
4.1

Allocation of expense historically associated with the former Parent's corporate employees(1)

 
1.7

 

 
11.4

Expense related to modification as of Spin-Off date
0.3

 

 
0.6

 

Stock-based compensation expense
4.3

 
3.1

 
11.2

 
15.5

Income tax benefit
(1.7
)
 
(1.1
)
 
(4.1
)
 
(5.8
)
Stock-based compensation expense, net of income tax benefit
$
2.6

 
$
2.0

 
$
7.1

 
$
9.7

(1)
See Note 1 of our consolidated and combined financial statements included in our 2015 Annual Report on Form 10-K for a discussion of the methodology used to allocate corporate-related costs prior to the Spin-Off.
Restricted Stock Share and Restricted Stock Unit Awards
The Monte Carlo simulation model valuation technique was used to determine the fair value of our restricted stock shares and restricted stock units that contain a “market condition.” The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award and calculates the fair value of each restricted stock share and restricted stock unit award.
The following table summarizes the unvested restricted stock share and restricted stock unit activity for the six months ended July 2, 2016, for the Company's employees:
 
Unvested Restricted Stock Shares and Restricted Stock Units
 
Weighted-Average Grant-Date Fair Value Per Share
Outstanding at December 31, 2015
1.128
 
$51.13
Granted
0.723
 
27.98
Vested
(0.276)
 
56.27
Forfeited and other
(0.298)
 
40.39
Outstanding at July 2, 2016
1.277
 
$39.50
As of July 2, 2016, there was $22.7 of unrecognized compensation cost related to SPX FLOW's restricted stock share and restricted stock unit compensation arrangements, including the effect of the modification discussed above. We expect this cost to be recognized over a weighted-average period of 1.9 years.
Stock Options
On January 2, 2015, eligible employees of the Company were granted 0.034 options in the former Parent's stock, all of which were outstanding (but not exercisable) from that date up to the Spin-Off. The weighted-average exercise price per share of these options was $85.87 and the maximum term of these options is 10 years.
The weighted-average grant-date fair value per share of the former Parent's stock options granted on January 2, 2015 was $27.06. The fair value of each former Parent's option grant was estimated using the Black-Scholes option-pricing model.
In connection with the Spin-Off, certain corporate employees of the former Parent became employees of the Company. The number of outstanding SPX FLOW stock options, after reflecting (i) the former Parent stock options that had been granted to such corporate employees of the former Parent on January 2, 2015, and (ii) the conversion of the former Parent stock options

17


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

to SPX FLOW stock options, was 0.396. After reflecting 0.025 of forfeitures during the fourth quarter of 2015, there were 0.371 of SPX FLOW options outstanding as of July 2, 2016 and December 31, 2015, of which 0.285 were exercisable as of July 2, 2016.
As a result of the conversion of the stock options, the weighted-average exercise price per share of the SPX FLOW stock options is $61.29 and the weighted-average grant-date fair value per share of the SPX FLOW stock options is $19.33. Other terms of the SPX FLOW stock options are the same as those discussed above.
As of July 2, 2016, there was $0.7 of unrecognized compensation cost related to SPX FLOW stock options. We expect this cost to be recognized over a weighted-average period of 1.6 years.
Accumulated Other Comprehensive Loss
The primary component of accumulated other comprehensive loss as of July 2, 2016 and December 31, 2015, and in changes thereof during the three and six months then ended, was foreign currency translation adjustment of $(52.8) and $(40.7), respectively. The unrealized losses, net of tax, recorded in accumulated other comprehensive loss related to FX forward contracts were less than $0.1 as of July 2, 2016 and December 31, 2015.
The changes in the components of accumulated other comprehensive loss, net of tax, for the three months ended June 27, 2015 were as follows:
 
Foreign Currency Translation Adjustment
 
Net Unrealized Losses on Qualifying Cash Flow Hedges(1)
 
Pension Liability Adjustment(2)
 
Total
Balance at March 28, 2015
$
(339.6
)
 
$
(0.2
)
 
$
0.1

 
$
(339.7
)
Other comprehensive income before reclassifications
28.4

 
0.1

 

 
28.5

Amounts reclassified from accumulated other comprehensive loss

 

 

 

Current-period other comprehensive income
28.4

 
0.1

 

 
28.5

Balance at June 27, 2015
$
(311.2
)
 
$
(0.1
)
 
$
0.1

 
$
(311.2
)
(1)
Net of tax benefit of $0.0 and $0.1 as of June 27, 2015 and March 28, 2015, respectively.
(2)
Net of tax provision of $0.0 as of June 27, 2015 and March 28, 2015. The balances as of June 27, 2015 and March 28, 2015 include unamortized prior service credits.
The changes in the components of accumulated other comprehensive loss, net of tax, for the six months ended June 27, 2015 were as follows:
 
Foreign Currency Translation Adjustment
 
Net Unrealized Losses on Qualifying Cash Flow Hedges(1)
 
Pension Liability Adjustment(2)
 
Total
Balance at December 31, 2014
$
(219.3
)
 
$

 
$
0.1

 
$
(219.2
)
Other comprehensive loss before reclassifications
(91.9
)
 
(0.1
)
 

 
(92.0
)
Amounts reclassified from accumulated other comprehensive loss

 

 

 

Current-period other comprehensive loss
(91.9
)
 
(0.1
)
 

 
(92.0
)
Balance at June 27, 2015
$
(311.2
)
 
$
(0.1
)
 
$
0.1

 
$
(311.2
)
(1)
Net of tax benefit of $0.0 as of June 27, 2015.
(2)
Net of tax provision of $0.0 as of June 27, 2015 and December 31, 2014. The balances as of June 27, 2015 and December 31, 2014 included unamortized prior service credits.

18


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

Common Stock in Treasury
During the three and six months ended July 2, 2016, “Common stock in treasury” was increased by $0.1 and $2.7, respectively, for common stock that was surrendered by recipients of restricted stock as a means of funding the related minimum income tax withholding requirements.
(12)    LITIGATION AND CONTINGENT LIABILITIES
We are subject to litigation matters that arise in the normal course of business. We believe these matters are either without merit or of a kind that should not have a material effect, individually or in the aggregate, on our financial position, results of operations or cash flows.
We are subject to domestic and international environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. We believe our compliance obligations with environmental protection laws and regulations should not have a material effect, individually or in the aggregate, on our financial position, results of operations or cash flows.
(13)    INCOME TAXES
Unrecognized Tax Benefits
As of July 2, 2016, we had gross unrecognized tax benefits of $21.6 (net unrecognized tax benefits of $9.2), of which $9.2, if recognized, would impact our effective tax rate.
We classify interest and penalties related to unrecognized tax benefits as a component of our income tax provision. As of July 2, 2016, gross accrued interest totaled $1.9 (net accrued interest of $1.8), and there was no accrual for penalties included in our unrecognized tax benefits.
Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by $3.0 to $5.0. The previously unrecognized tax benefits relate to a variety of tax issues, including transfer pricing and non-U.S. income tax matters.
The unrecognized tax benefits described above represent amounts that were included in tax returns filed by the Company. Historically, a portion of the Company's operations were included in tax returns filed by the former Parent or its subsidiaries that were not part of the Spin-Off. As a result, some uncertain tax positions related to the Company's operations resulted in unrecognized tax benefits that are now potential obligations of the former Parent or its subsidiaries due to the Spin-Off. Because activities that gave rise to these unrecognized tax benefits related to the Company's operations for the three and six months ended June 27, 2015, the impact of these items was recorded to "Income tax provision" within our condensed combined statements of operations, with the offset recorded to "Former parent company investment" within our condensed combined balance sheets prior to the Spin-Off date, which have been reclassified to "Paid-in capital" in our condensed consolidated balance sheet as of December 31, 2015.
In addition, some of the Company's tax returns previously included the operations of the former Parent's subsidiaries that were not part of the Spin-Off. In certain of these cases, the subsidiaries' activities gave rise to unrecognized tax benefits for which the Company could be potentially liable. When required under the Income Taxes Topic of the Codification, we recorded a liability for these uncertain tax positions within our condensed consolidated balance sheets. However, since the potential obligations were the result of activities associated with operations that were not part of the Spin-Off, we have not reflected any related amounts within our "Income tax provision" for the three and six months ended June 27, 2015, but have instead recorded the amounts directly to "Former parent company investment" within our condensed combined balance sheets prior to the Spin-Off date, which have been reclassified to "Paid-in capital" in our condensed consolidated balance sheet as of December 31, 2015.
Other Tax Matters
During the three months ended July 2, 2016, we recorded an income tax benefit of $56.2 on $408.5 of pre-tax loss, resulting in an effective tax rate of 13.8%. This compares to an income tax provision for the three months ended June 27, 2015

19


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

of $11.6 on $58.3 of pre-tax income, resulting in an effective tax rate of 19.9%. The effective tax rate for the second quarter of 2016 was impacted by an income tax benefit of $68.0 resulting from the $426.4 goodwill and intangible assets impairment charge recorded by our Power and Energy reporting unit (an effective tax rate of 15.9%), as (i) the majority of the goodwill for the Power and Energy reporting unit has no basis for income tax purposes and (ii) the impairment charge resulted in the addition of a valuation allowance for certain deferred income tax assets. The effective tax rate for the second quarter of 2016 also reflects the magnified effect that the small amount of our annual forecasted pre-tax loss has on forecasted annual tax expense. The effective tax rate for the second quarter of 2015 was impacted by a tax benefit of $2.0 related to FX losses recognized for income tax purposes with respect to a foreign branch.
During the six months ended July 2, 2016, we recorded an income tax benefit of $62.9 on $447.3 of pre-tax loss, resulting in an effective tax rate of 14.1%. This compares to an income tax provision for the six months ended June 27, 2015 of $22.6 on $92.4 of pre-tax income, resulting in an effective tax rate of 24.5%. The effective tax rate for the first six months of 2016 was impacted by an income tax benefit of $68.0 resulting from the $426.4 goodwill and intangible assets impairment charge recorded by our Power and Energy reporting unit (an effective tax rate of 15.9%), as (i) the majority of the goodwill for the Power and Energy reporting unit has no basis for income tax purposes and (ii) the impairment charge resulted in the addition of a valuation allowance for certain deferred income tax assets. The effective tax rate for the first six months of 2016 also reflects the magnified effect that the small amount of our annual forecasted pre-tax loss has on forecasted annual tax expense. The effective tax rate for the first six months of 2015 was impacted by a tax benefit of $2.0 related to FX losses recognized for income tax purposes with respect to a foreign branch.
We review our income tax positions on a continuous basis and record a provision for potential uncertain positions when we determine that an uncertain position meets the criteria of the Income Taxes Topic of the Codification. As events change and resolutions occur, adjustments are made to amounts previously provided, such as in the case of audit settlements with taxing authorities.
In connection with the Spin-Off, we and the former Parent entered into a Tax Matters Agreement which, among other matters, addresses the allocation of certain tax adjustments that might arise upon examination of the 2013, 2014 and the pre-Spin-Off portion of the 2015 federal income tax returns of the former Parent. None of those returns is currently under examination, and we believe any contingencies have been adequately provided for.
State income tax returns generally are subject to examination for a period of three to five years after filing the respective tax returns. The impact on such tax returns of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. We have various state income tax returns in the process of examination or administrative appeal. We believe any uncertain tax positions related to these examinations have been adequately provided for.
We have various non-U.S. income tax returns under examination. The most significant of these are in Germany for the 2010 through 2013 tax years. We believe that any uncertain tax positions related to these examinations have been adequately provided for. During the second quarter of 2016, we settled an examination in Denmark related to the 2006 and 2007 tax years. This settlement did not have an impact on our effective tax rate during our second quarter of 2016 or require the cash payment of any taxes, as net tax assets in this jurisdiction had a full valuation allowance recorded against them as of April 2, 2016.
An unfavorable resolution of one or more of the above matters could have a material adverse effect on our results of operations or cash flows in the quarter and year in which an adjustment is recorded or the tax is due or paid. As audits and examinations are still in process or we have not yet reached the final stages of the appeals process, the timing of the ultimate resolution and any payments that may be required for the above matters cannot be determined at this time.
(14)     FAIR VALUE
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
Level 1 — Quoted prices for identical instruments in active markets.

20


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 — Significant inputs to the valuation model are unobservable.
There were no changes during the periods presented to the valuation techniques we use to measure asset and liability fair values on a recurring basis. There were no transfers between the three levels of the fair value hierarchy during the six months ended July 2, 2016 and June 27, 2015.
The following section describes the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis.
Derivative Financial Instruments
Our derivative financial assets and liabilities include FX forward contracts and FX embedded derivatives, valued using valuation models based on observable market inputs such as forward rates, interest rates, our own credit risk and the credit risk of our counterparties, which comprise investment-grade financial institutions. Based on these inputs, the derivative assets and liabilities are classified within Level 2 of the valuation hierarchy. We have not made any adjustments to the inputs obtained from the independent sources. Based on our continued ability to enter into forward contracts, we consider the markets for our fair value instruments active. We primarily use the income approach, which uses valuation techniques to convert future amounts to a single present amount.
As of July 2, 2016 and December 31, 2015, the gross fair values of our derivative financial assets and liabilities, in aggregate, were $2.9 and $2.0 (gross assets) and $1.3 and $1.5 (gross liabilities), respectively. As of July 2, 2016, there had been no significant impact to the fair value of our derivative liabilities due to our own credit risk as the related instruments are collateralized under our senior credit facilities. Similarly, there had been no significant impact to the fair value of our derivative assets based on our evaluation of our counterparties’ credit risks.
Investments in Equity Securities
Certain of our investments in equity securities that are not readily marketable are accounted for under the fair value option and are classified as Level 3 assets in the fair value hierarchy, with such values determined by multidimensional pricing models. These models consider market activity based on modeling of securities with similar credit quality, duration, yield and structure. A variety of inputs are used, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spread and reference data including market research publications. Market indicators, industry and economic events are also considered. We have not made any adjustments to the inputs obtained from the independent sources. At July 2, 2016 and December 31, 2015, these assets had a fair value of $7.9 and $8.1, respectively.
The table below presents a reconciliation of our investment in equity securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended July 2, 2016 and June 27, 2015, including net unrealized gains (losses) recorded to “Other income (expense), net."
 
Six months ended
 
July 2, 2016
 
June 27, 2015
Balance at beginning of year
$
8.1

 
$
7.4

Unrealized gains (losses) recorded to earnings
(0.2
)
 
2.9

Balance at end of period
$
7.9

 
$
10.3

Goodwill, Indefinite-Lived Intangible and Other Long-Lived Assets
Certain of our non-financial assets are subject to impairment analysis, including long-lived assets, indefinite-lived intangible assets and goodwill. We review the carrying amounts of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable or at least annually for indefinite-lived intangible assets and goodwill. Any resulting impairment would require that the asset be recorded at its fair value. At December 31, 2015, we did not have any significant non-financial assets or liabilities that were required to be measured at fair value on a recurring or non-recurring basis. Refer to Note 6 for further discussion pertaining to our annual and interim evaluation of goodwill and other intangible assets

21


SPX FLOW, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited; in millions, except per share data)

for impairment, including the goodwill and intangible asset impairment charge recognized during the three and six months ended July 2, 2016.
Indebtedness and Other
The estimated fair values of other financial liabilities (excluding capital leases and deferred financing fees) not measured at fair value on a recurring basis as of July 2, 2016 and December 31, 2015 were as follows:
 
July 2, 2016
 
December 31, 2015
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Domestic revolving loan facility
$
2.0

 
$
2.0

 
$

 
$

Term loan(1)
400.0

 
400.0

 
400.0

 
400.0

Senior notes(1)
600.0

 
625.5

 
600.0

 
637.5

Trade receivables financing arrangement
11.0

 
11.0

 

 

Other indebtedness
20.7

 
20.7

 
28.0

 
28.0

(1)
Carrying amount reflected herein excludes related deferred financing fees.
The following methods and assumptions were used in estimating the fair value of these financial instruments:
The fair values of the term loan and senior notes were determined using Level 2 inputs within the fair value hierarchy and were based on quoted market prices for the same or similar instruments or on current rates offered to us for debt with similar maturities, subordination and credit default expectations.
The fair value of our other indebtedness approximated carrying value due primarily to the short-term nature of these instruments.
The carrying amounts of cash and equivalents and receivables reported in our condensed consolidated balance sheets as of July 2, 2016 and December 31, 2015 approximate fair value due to the short-term nature of those instruments.
(15)    RELATED PARTY TRANSACTIONS
Allocation of General Corporate Expenses

The condensed combined statements of operations for the three and six months ended June 27, 2015 include expenses for certain centralized functions and other programs provided and/or administered by the former Parent charged directly to business units of the Company. In addition, for purposes of preparing these condensed combined financial statements for periods prior to the Spin-Off on a “carve-out” basis, a portion of the former Parent's total corporate expenses have been allocated to the Company. A detailed description of the methodology used to allocate corporate-related costs is included in our consolidated and combined financial statements included in our 2015 Annual Report on Form 10-K.
Related Party Interest
We recorded interest income of $8.4 and $18.8 for the three and six months ended June 27, 2015, respectively, associated with related party notes receivable of $670.0 outstanding as of June 27, 2015, with the former Parent serving as the counterparty. The related party notes receivable had a weighted-average interest rate of approximately 5.0% as of June 27, 2015.
We recorded interest expense of $10.7 and $28.4 for the three and six months ended June 27, 2015, respectively, associated with (i) related party notes payable of $391.3 outstanding as of June 27, 2015, with the former Parent (and certain other of its affiliates that were not part of the Spin-Off) serving as counterparties, and (ii) $600.5 of other related party notes payable that were extinguished by way of a capital contribution to the Company by the former Parent during the second quarter of 2015. The related party notes payable had a weighted-average interest rate of approximately 7.0% as of June 27, 2015.

22


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (in millions)
FORWARD-LOOKING STATEMENTS
Some of the statements in this document and any documents incorporated by reference, including any statements as to operational and financial projections, constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our businesses’ or our industries’ actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Such statements may address our plans, our strategies, our prospects, or changes and trends in our business and the markets in which we operate under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) or in other sections of this document. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential” or “continue” or the negative of those terms or similar expressions. Particular risks facing us include business, internal operations, legal and regulatory risks, costs of raw materials, pricing pressures, pension funding requirements, integration of acquisitions and changes in the economy.  These statements are only predictions. Actual events or results may differ materially because of market conditions in our industries or other factors, and forward-looking statements should not be relied upon as a prediction of actual results. In addition, management’s estimates of future operating results are based on our current complement of businesses, which is subject to change as management selects strategic markets.
All the forward-looking statements in this document are qualified in their entirety by reference to the factors discussed under the heading “Risk Factors” in our 2015 Annual Report on Form 10-K and in any documents incorporated by reference herein that describe risks and factors that could cause results to differ materially from those projected in these forward-looking statements. We caution you that these risk factors may not be exhaustive. We operate in a continually changing business environment and frequently enter into new businesses and product lines. We cannot predict these new risk factors, and we cannot assess the impact, if any, of these new risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, you should not rely on forward-looking statements as a prediction of actual results. We undertake no obligation to update or publicly revise any forward-looking statements to reflect events or circumstances that arise after the date of this document.
EXECUTIVE OVERVIEW
Our Business
SPX FLOW, Inc. and its consolidated subsidiaries (“SPX FLOW,” ‘‘the Company,’’ “we,” “us,” or “our”) operate in three business segments and were wholly-owned by SPX Corporation (the “former Parent”) until September 26, 2015, at which time the former Parent distributed 100% of our outstanding common stock to its shareholders through a tax-free spin-off transaction (the “Spin-Off”).
We are a global supplier of highly specialized, engineered solutions with operations in over 35 countries and sales in over 150 countries around the world. Our solutions play a role in helping to meet the global demand in the end markets we serve. Our total revenue in 2015 was $2.4 billion, with approximately 29% from sales into emerging markets.
We serve the food and beverage, power and energy and industrial markets. Our product portfolio of pumps, valves, mixers, filters, air dryers, hydraulic tools, homogenizers, separators and heat exchangers, along with the related aftermarket parts and services, supports global industries, including food and beverage, oil and gas, power generation (including nuclear and conventional), chemical processing, compressed air and mining. From an end market perspective, in 2015, approximately 36% of our revenues were from sales into the food and beverage end markets, approximately 28% were from sales into the power and energy end markets, and approximately 36% were from sales into the industrial end markets. Our core strengths include product breadth, global capabilities and the ability to create custom-engineered solutions for diverse flow processes. Over the past several years, we have strategically expanded our scale, relevance to customers, and global capabilities. We believe there are attractive organic and acquisition opportunities to continue to expand our business.
We focus on a number of operating initiatives, including innovation and new product development, continuous improvement driven by lean methodologies, supply chain management, process efficiency, expansion in emerging markets,

23


information technology infrastructure improvement, and organizational and talent development. These initiatives are designed to, among other things, capture synergies within our businesses to ultimately drive revenue, profit margin and cash flow growth. We believe our businesses are well-positioned for long-term growth based on our operating initiatives, the potential within the current markets served and the potential for expansion into additional markets.
Our business is organized into three reportable segments — Food and Beverage, Power and Energy and Industrial. The following summary describes the products and services offered by each of our reportable segments:
Food and Beverage:  The Food and Beverage reportable segment operates in a regulated, global industry with customers who demand highly engineered, turn-key solutions. Key demand drivers include dairy consumption, emerging market capacity expansion, sustainability and productivity initiatives, customer product innovation and food safety. Key products for the segment include mixing, drying, evaporation and separation systems and components, heat exchangers, and reciprocating and centrifugal pump technologies. Our core brands include Anhydro, APV, Bran+Luebbe, Gerstenberg Schroeder, LIGHTNIN, Seital and Waukesha Cherry-Burrell. The segment's primary competitors are Alfa Laval AB, Fristam Pumps, GEA Group AG, Krones AG, Südmo, Tetra Pak, and various regional companies. 
Power and Energy:  The Power and Energy reportable segment primarily serves customers in the oil and gas industry and, to a lesser extent, the nuclear and other conventional power industries. A large portion of the segment's revenues are concentrated in oil extraction, production and transportation at existing wells, and in pipeline applications. The underlying driver of this segment includes demand for power and energy. Key products for the segment include pumps, valves and the related accessories, while the core brands include APV, Bran+Luebbe, ClydeUnion Pumps, Copes-Vulcan, Dollinger Filtration, LIGHTNIN, M&J Valve, Plenty, and Vokes. The segment's primary competitors are Cameron International Corporation, Ebara Fluid Handling, Flowserve Corporation, ITT Goulds Pumps, KSB AG, and Sulzer Ltd. 
Industrial:  The Industrial reportable segment primarily serves customers in the chemical, air treatment, mining, pharmaceutical, marine, shipbuilding, infrastructure construction, general industrial and water treatment industries. Key demand drivers of this segment are tied to macroeconomic conditions and growth in the respective end markets we serve. Key products for the segment are air dryers, filtration equipment, mixers, pumps, hydraulic technologies and heat exchangers. Core brands include Airpel, APV, Bolting Systems, Delair, Deltech, Hankison, Jemaco, Johnson Pump, LIGHTNIN, Power Team, and Stone. The segment's primary competitors are Alfa Laval AB, Chemineer Inc., EKATO, Actuant, Enerpac, IDEX Viking Pump, KSB AG, Parker Domnick Hunter and various regional companies.
Summary of Operating Results
Non-GAAP Measures - Throughout the following segment discussion, we use organic revenue growth (decline) to facilitate explanation of the operating performance of our segments. Organic revenue growth (decline) is a non-GAAP financial measure, and is not a substitute for net revenue growth (decline). Refer to the explanation of this measure and purpose of use by management under “Results of Operations-Non-GAAP Measures.”
The financial information discussed below and included in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations or cash flows would have been had we been operated as a separate, independent entity during the periods presented prior to the Spin-Off, or what our financial condition, results of operations and cash flows may be in the future.
The following summary is intended to provide a few highlights of the discussion and analysis that follows (all comparisons are to the related periods in the prior year):
Revenues — For the three and six months ended July 2, 2016, decreased 14.0% and 12.9%, respectively, primarily as a result of the impacts of lower oil and dairy prices on revenues.
Income (Loss) before Income Taxes — The loss before income taxes of $408.5 for the three months ended July 2, 2016, includes a charge of $426.4 related to the impairment of goodwill and intangible assets of our Power and Energy reportable segment (see Note 6 to our condensed consolidated and combined financial statements for further details related to this charge). The reduction in pre-tax income, compared to the respective 2015 period, primarily resulted from this impairment charge and, to a lesser extent, declines in segment profitability, an increase in net interest expense, and an increase in special charges related to our global realignment program during the period.


24


The loss before income taxes was $447.3 for the six months ended July 2, 2016. The reduction in pre-tax income, compared to the respective 2015 period, primarily resulted from the impairment charge referred to above and, to a lesser extent, declines in segment profitability, an increase in special charges related to our global realignment program, and an increase in net interest expense during the period.
Cash Flows from (used in) Operations — For the six months ended July 2, 2016, decreased to $(28.6) from $41.0 primarily as a result of (i) a decline in segment profitability, (ii) an interest payment of $20.6 related to our senior notes, (iii) an increase in cash spending on restructuring actions, and (iv) pension benefit payments of $12.0 to certain former officers of the Company.
RESULTS OF OPERATIONS
The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with our annual consolidated and combined financial statements included in our 2015 Annual Report on Form 10-K. Interim results are not necessarily indicative of results for a full year. We establish actual interim closing dates using a fiscal calendar, which requires our businesses to close their books on the Saturday closest to the end of the first calendar quarter, with the second and third quarters being 91 days in length. Our fourth quarter ends on December 31. The interim closing dates for the first, second and third quarters of 2016 are April 2, July 2, and October 1, compared to the respective March 28, June 27, and September 26, 2015 dates. We had six more days in the first quarter of 2016 and will have five less days in the fourth quarter of 2016 than in the respective 2015 periods.
Cyclicality of End Markets, Seasonality and Competition -The financial results of our businesses closely follow changes in the industries and end markets they serve. In addition, certain businesses have seasonal fluctuations. Also, capital spending on original equipment by our customers in the oil and gas industries is heavily influenced by current and expected oil and gas prices. The significant decline in oil prices from the latter half of 2014 and continuing throughout 2015, as well as the recent volatility in oil prices throughout the first half of 2016 and the uncertainty in future oil prices, continue to impact both operational and capital spending by end customers in our Power and Energy reportable segment.  Revenues from food and beverage systems and related services are highly correlated to timing on large construction contracts, which may cause significant fluctuations in our financial performance from period to period. The reduction in dairy commodity prices and increased production of dry powder dairy products, particularly related to the China market, has resulted in delayed or deferred capital spending by many end customers in our Food and Beverage reportable segment.
Although our businesses operate in highly competitive markets, our competitive position cannot be determined accurately in the aggregate or by segment since our competitors do not offer all the same product lines or serve all the same markets. In addition, specific reliable comparative figures are not available for many of our competitors. In most product groups, competition comes from numerous concerns, both large and small. The principal methods of competition are service, product performance, technical innovation and price. These methods vary with the type of product sold. We believe we compete effectively on the basis of each of these factors. See "Our Business" for a discussion of our competitors.
Non-GAAP Measures - Organic revenue growth (decline) presented herein is defined as revenue growth (decline) excluding the effects of foreign currency fluctuations and acquisitions. We believe this metric is a useful financial measure for investors in evaluating our operating performance for the periods presented, as, when read in conjunction with our revenues, it presents a useful tool to evaluate our ongoing operations and provides investors with a metric they can use to evaluate our management of assets held from period to period. In addition, organic revenue growth (decline) is one of the factors we use in internal evaluations of the overall performance of our business. This metric, however, is not a measure of financial performance under accounting principles generally accepted in the United States (“GAAP”), should not be considered a substitute for net revenue growth (decline) as determined in accordance with GAAP and may not be comparable to similarly titled measures reported by other companies.

25



The following table provides selected financial information for the three and six months ended July 2, 2016 and June 27, 2015, respectively, including the reconciliation of organic revenue decline to net revenue decline:
 
Three months ended
 
Six months ended
 
July 2, 2016
 
June 27, 2015
 
% Change
 
July 2, 2016
 
June 27, 2015
 
% Change
Revenues
$
528.8

 
$
615.1

 
(14.0
)
 
$
1,033.8

 
$
1,186.3

 
(12.9
)
Gross profit
166.8

 
211.2

 
(21.0
)
 
326.0

 
399.5

 
(18.4
)
% of revenues
31.5
%
 
34.3
%
 
 
 
31.5
%
 
33.7
%
 
 
Selling, general and administrative
118.0

 
139.2

 
(15.2
)
 
252.4

 
282.1

 
(10.5
)
% of revenues
22.3
%
 
22.6
%
 
 
 
24.4
%
 
23.8
%
 
 
Intangible amortization
5.7

 
5.9

 
(3.4
)
 
11.4

 
11.9

 
(4.2
)
Impairment of goodwill and intangible assets
426.4

 

 
*

 
426.4

 

 
*

Special charges, net
10.8

 
3.3

 
227.3

 
51.8

 
7.1

 
*

Other income (expense), net
(0.1
)
 
(1.8
)
 
(94.4
)
 
(2.6
)
 
4.3

 
(160.5
)
Related party interest expense, net

 
(2.3
)
 
(100.0
)
 

 
(9.6
)
 
(100.0
)
Other interest expense, net
(14.3
)
 
(0.4
)
 
*

 
(28.7
)
 
(0.7
)
 
*

Income (loss) before income taxes
(408.5
)
 
58.3

 
*

 
(447.3
)
 
92.4

 
*

Income tax benefit (provision)
56.2

 
(11.6
)
 
*

 
62.9

 
(22.6
)
 
*

Net income (loss)
(352.3
)
 
46.7

 
*

 
(384.4
)
 
69.8

 
*

Less: Net income (loss) attributable to noncontrolling interests
0.5

 
(0.4
)
 
(225.0
)
 
(0.5
)
 
(0.7
)
 
(28.6
)
Net income (loss) attributable to SPX FLOW, Inc.
$
(352.8
)
 
$
47.1

 
*

 
$
(383.9
)
 
$
70.5

 
*

 
 
 
 
 
 
 
 
 
 
 
 
Components of consolidated and combined revenue decline:
 
 
 
 
 
 
 
 
 
 
 
Organic decline
 
 
 
 
(11.9
)
 
 
 
 
 
(10.7
)
Foreign currency
 
 
 
 
(2.1
)
 
 
 
 
 
(2.2
)
Net revenue decline
 
 
 
 
(14.0
)
 
 
 
 
 
(12.9
)
____________________________________________________________
*    Not meaningful for comparison purposes.
Revenues - For the three and six months ended July 2, 2016, the decrease in revenues, compared to the respective 2015 periods, was due primarily to a decrease in organic revenue and, to a lesser extent, a strengthening of the U.S. dollar against various foreign currencies. The decrease in organic revenue was due primarily to the impacts of lower oil and dairy prices on customer order patterns.
Gross Profit - The decrease in gross profit and margin for the three and six months ended July 2, 2016, compared to the respective 2015 periods, was attributable primarily to the revenue declines noted above. Gross margin decreased during the three and six months ended July 2, 2016, compared to the respective 2015 periods, due also to competitive pricing pressures, a lower mix of higher margin products, and lower utilization rates at certain of our manufacturing locations, partially offset by savings from restructuring actions. See "Results of Reportable Segments" for additional details.
Selling, General and Administrative (“SG&A”) Expense - For the three and six months ended June 27, 2015, SG&A expense included allocations of general corporate expenses from the former Parent, including pension and postretirement expense and stock-based compensation. See Note 1 to our consolidated and combined financial statements included in our 2015 Annual Report on Form 10-K for further details on our methodology for allocating corporate-related costs prior to the Spin-Off.
For the three months ended July 2, 2016, the decrease in SG&A expense, compared to the respective 2015 period, was due primarily to (i) reduced incentive compensation expense, due to lower profitability in the three months ended July 2, 2016, compared to the respective period in 2015, (ii) savings from restructuring actions related to our global realignment program,

26



announced during the first quarter of 2016, and (iii) the effect of a stronger U.S. dollar against various foreign currencies during the period.
For the six months ended July 2, 2016, the decrease in SG&A expense, compared to the respective 2015 period, was due to the items noted above, as well as reductions in stock-based compensation expense (see “Corporate and Other Expenses” for additional details).
Intangible Amortization - For the three and six months ended July 2, 2016, the decrease in intangible amortization, compared to the respective periods in 2015, was due primarily to the impact of foreign currency translation.
Impairment of Goodwill and Intangible Assets - During the three and six months ended July 2, 2016, we performed an interim goodwill impairment test and determined that the fair value of our Power and Energy reporting unit was less than the carrying value of its net assets. As a result of this determination, we recorded an impairment charge of $252.8 to reduce the goodwill of the reporting unit to its implied fair value. We also recorded an additional impairment charge of $173.6 related to certain intangible assets of certain businesses within our Power and Energy reportable segment. See Note 6 to our condensed consolidated and combined financial statements for further discussion.
Special Charges, net - Special charges, net, for the three and six months ended July 2, 2016, relate primarily to our global realignment program including restructuring initiatives to consolidate manufacturing, distribution, sales and administrative facilities, reduce workforce and, for the six months ended July 2, 2016, an asset impairment charge associated with management's decision to market for sale certain corporate assets. See Note 4 to our condensed consolidated and combined financial statements for the details of actions taken during the three and six months ended July 2, 2016 and June 27, 2015, respectively.
Other Income (Expense), net - Other expense, net, for the three months ended July 2, 2016 was composed of investment-related losses of $0.3, partially offset by foreign currency (“FX”) gains of $0.2.
Other expense, net, for the three months ended June 27, 2015 was composed primarily of FX losses of $2.9, partially offset by gains on asset sales of $1.2.
Other expense, net, for the six months ended July 2, 2016 was composed of FX losses of $3.0, net settlement costs of $0.7 related to certain legal and tax-related claims, and investment-related losses of $0.2, partially offset by gains on asset sales of $1.3.
Other income, net, for the six months ended June 27, 2015 was composed of investment-related earnings of $2.9, gains on asset sales of $1.2 and FX gains of $0.2. The $2.9 of investment-related earnings represented unrealized gains on our investment in equity securities. See Note 14 to our condensed consolidated and combined financial statements for additional details.
Related Party Interest Expense, net - Related party interest expense, net, for the three months ended June 27, 2015 was comprised of interest on notes receivable and notes payable with the former Parent (and certain other of its affiliates that were not part of the Spin-Off) serving as the counterparties. Such amount was comprised of $10.7 of related party interest expense, partially offset by $8.4 of related party interest income. See Note 15 to our condensed consolidated and combined financial statements for additional details on our related party notes.
Related party interest expense, net, for the six months ended June 27, 2015 was comprised of $28.4 of interest expense, partially offset by $18.8 of interest income.
There were no related party notes receivable or payable outstanding during the six months ended July 2, 2016.
Other Interest Expense, net - Other interest expense, net, for the three and six months ended July 2, 2016, was composed primarily of interest expense related to our senior notes and senior credit facility and, to a lesser extent, interest expense related to our trade receivables financing arrangement, capital lease obligations and miscellaneous lines of credit, partially offset by interest income on cash and equivalents. Other interest expense, net, for the three and six months ended June 27, 2015 (prior to the Spin-Off), was composed primarily of interest expense related to capital lease obligations and miscellaneous lines of credit, partially offset by interest income on cash and equivalents.
Other interest expense, net, included interest expense of $15.2 and $0.9, and interest income of $0.9 and $0.5, respectively, during the three months ended July 2, 2016 and June 27, 2015. Other interest expense, net, included interest expense of $30.4 and $1.7, and interest income of $1.7 and $1.0, respectively, during the six months ended July 2, 2016 and June 27, 2015. See Note 9 to our condensed consolidated and combined financial statements for additional details on our third-party debt.

27



Income Tax Benefit (Provision) - During the three months ended July 2, 2016, we recorded an income tax benefit of $56.2 on $408.5 of pre-tax loss, resulting in an effective tax rate of 13.8%. This compares to an income tax provision for the three months ended June 27, 2015 of $11.6 on $58.3 of pre-tax income, resulting in an effective tax rate of 19.9%. The effective tax rate for the second quarter of 2016 was impacted by an income tax benefit of $68.0 resulting from the $426.4 goodwill and intangible assets impairment charge recorded by our Power and Energy reporting unit (an effective tax rate of 15.9%), as (i) the majority of the goodwill for the Power and Energy reporting unit has no basis for income tax purposes and (ii) the impairment charge resulted in the addition of a valuation allowance for certain deferred income tax assets. The effective tax rate for the second quarter of 2016 also reflects the magnified effect that the small amount of our annual forecasted pre-tax loss has on forecasted annual tax expense. The effective tax rate for the second quarter of 2015 was impacted by a tax benefit of $2.0 related to FX losses recognized for income tax purposes with respect to a foreign branch.
During the six months ended July 2, 2016, we recorded an income tax benefit of $62.9 on $447.3 of pre-tax loss, resulting in an effective tax rate of 14.1%. This compares to an income tax provision for the six months ended June 27, 2015 of $22.6 on $92.4 of pre-tax income, resulting in an effective tax rate of 24.5%. The effective tax rate for the first six months of 2016 was impacted by an income tax benefit of $68.0 resulting from the $426.4 goodwill and intangible assets impairment charge recorded by our Power and Energy reporting unit (an effective tax rate of 15.9%), as (i) the majority of the goodwill for the Power and Energy reporting unit has no basis for income tax purposes and (ii) the impairment charge resulted in the addition of a valuation allowance for certain deferred income tax assets. The effective tax rate for the first six months of 2016 also reflects the magnified effect that the small amount of our annual forecasted pre-tax loss has on forecasted annual tax expense. The effective tax rate for the first six months of 2015 was impacted by a tax benefit of $2.0 related to FX losses recognized for income tax purposes with respect to a foreign branch.
RESULTS OF REPORTABLE SEGMENTS
In January 2016, we changed our internal reporting structure to more precisely present reportable segment revenue and income in certain countries where we conduct business across multiple end markets. As a result of these structural enhancements, certain product line results have been reclassified between reportable segments. Additionally, we changed our measurement of segment income to include stock-based compensation costs associated with segment employees, while stock-based compensation for corporate employees is now reported as a component of corporate expense. These changes in reportable segment revenue and income, as well as in our measurement of segment profitability, are consistent with how our chief operating decision maker, beginning in 2016, assesses operating performance and allocates resources.
Segment results and corporate expense have been recast for all historical periods presented to reflect these changes.
The following information should be read in conjunction with our condensed consolidated and combined financial statements and related notes.
Food and Beverage
 
Three months ended
 
Six months ended
 
July 2, 2016
 
June 27, 2015
 
% Change
 
July 2, 2016
 
June 27, 2015
 
% Change
Revenues
$
188.0

 
$
234.8

 
(19.9
)
 
$
372.8

 
$
444.9

 
(16.2
)
Income
19.9

 
28.6

 
(30.4
)
 
37.3

 
51.0

 
(26.9
)
% of revenues
10.6
%
 
12.2
%
 
 
 
10.0
%
 
11.5
%
 
 
Components of revenue decline:
 
 
 
 
 
 
 
 
 
 
 
Organic decline
 
 
 
 
(18.5
)
 
 
 
 
 
(14.5
)
Foreign currency
 
 
 
 
(1.4
)
 
 
 
 
 
(1.7
)
Net revenue decline
 
 
 
 
(19.9
)
 
 
 
 
 
(16.2
)
Revenues - For the three and six months ended July 2, 2016, the decrease in revenues, compared to the respective 2015 periods, was due primarily to a decrease in organic revenue and, to a lesser extent, a strengthening of the U.S. dollar during the periods against various foreign currencies. The decrease in organic revenue was due primarily to lower revenues from large systems projects as a decline in dairy pricing, which began in 2015, delayed the placement of several large systems orders, particularly for milk powder projects.

28


Income - For the three and six months ended July 2, 2016, income and margin decreased, compared to the respective periods in 2015, primarily due to the revenue declines noted above. These declines in income and margin were partially offset by savings from restructuring actions and other cost reduction initiatives implemented during the periods.
Backlog - The segment had backlog of $345.8 and $427.7 as of July 2, 2016 and June 27, 2015, respectively. Of the $81.9 year-over-year decline in backlog, $75.8 was attributable to an organic decline and $6.1 was due to the impact of changes in various foreign currencies relative to the U.S. dollar as of July 2, 2016, as compared to June 27, 2015. The organic decline was due primarily to the impact of the decline in dairy pricing in 2015 mentioned above and its impact on large systems orders.
Power and Energy
 
Three months ended
 
Six months ended
 
July 2, 2016
 
June 27, 2015
 
% Change
 
July 2, 2016
 
June 27, 2015
 
% Change
Revenues
$
155.8

 
$
184.1

 
(15.4
)
 
$
305.5

 
$
357.5

 
(14.5
)
Income
10.0

 
23.0

 
(56.5
)
 
12.2

 
39.0

 
(68.7
)
% of revenues
6.4
%
 
12.5
%
 
 
 
4.0
%
 
10.9
%
 
 
Components of revenue decline:
 
 
 
 
 
 
 
 
 
 
 
Organic decline
 
 
 
 
(11.9
)
 
 
 
 
 
(11.3
)
Foreign currency
 
 
 
 
(3.5
)
 
 
 
 
 
(3.2
)
Net revenue decline
 
 
 
 
(15.4
)
 
 
 
 
 
(14.5
)
Revenues - For the three months ended July 2, 2016, the decrease in revenues, compared to the respective 2015 period, was due primarily to a decrease in organic revenue and, to a lesser extent, a strengthening of the U.S. dollar during the period against various foreign currencies. The decrease in organic revenue was due primarily to the impact of lower oil prices on customer order patterns, particularly for upstream and midstream original equipment. Additionally, organic revenue declined as a result of revenues realized from a large nuclear project during the three months ended June 27, 2015 which not recur in the three months ended July 2, 2016.
For the six months ended July 2, 2016, the decrease in revenues, compared to the respective 2015 period, was due primarily to a decrease in organic revenue and, to a lesser extent, a strengthening of the U.S. dollar during the period against various foreign currencies. The decrease in organic revenue was due primarily to the impact on revenues of a lower backlog as of the beginning of 2016, compared to the respective period of 2015, due to lower oil prices, as well as the impacts mentioned above.
Income - For the three and six months ended July 2, 2016, income and margin decreased, compared to the respective 2015 periods, primarily due to the declines in revenue mentioned above. The decline in margin was also due to competitive pricing pressures and lower utilization rates at certain of our manufacturing locations, partially offset by savings from restructuring actions and other cost reduction initiatives implemented during the periods.
Backlog - The segment had backlog of $364.1 and $512.2 as of July 2, 2016 and June 27, 2015, respectively. Of the $148.1 year-over-year decline in backlog, $121.9 was attributable to an organic decline and $26.2 was attributable to the impact of a stronger U.S. dollar as of July 2, 2016, as compared to June 27, 2015, primarily relative to the Great Britain Pound. The organic decline was due primarily to the impact of lower oil prices mentioned above.

29


Industrial
 
Three months ended